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CFD Markets News and Forecasts — 05-01-2025
The People’s Bank of China (PBOC) said it will step up financial support for technology innovation and consumption stimulation as part of a continued effort to boost economic growth, per Bloomberg.
China’s central bank further stated that it will use new tools to provide liquidity to the stock market and reaffirmed its commitment to lower interest rates and the reserve requirement ratio for banks “at an appropriate time” to promote growth.
Market reaction
At the press time, the AUD/USD pair was up 0.02% on the day to trade at 0.6220.
Australian Dollar FAQs
One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.
The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.
China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.
Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.
The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.
Federal Reserve (Fed) Governor Adriana Kugler said on Saturday that inflation remains uncomfortably above the Fed’s target, but the central bank is working on that, per Reuters.
Key quotes
Obviously our job is not done.
We’re not at 2% yet, so we’re definitely aiming still to get there, and we know the job is not done.
The US economy ended 2024 in a good place.
Inflation has been coming down.
Says she suspects pressures from housing inflation and non-market services inflation are a bump.
Want to avoid any rapid increase in unemployment.
Market reaction
The US Dollar Index (DXY) is trading 0.01% higher on the day at 108.95, as of writing.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
- AUD/USD edges lower to 0.6210 in Monday’s early Asian session.
- Fed officials said the job is not done on inflation.
- The Aussie remains under pressure amid expectations of RBA rate cuts and Trump tariff threats.
The AUD/USD pair softens to near 0.6210 during the early Asian session on Monday. The rising bets that the Reserve Bank of Australia (RBA) will be compelled to start cutting interest rates exert some selling pressure on the Australian Dollar (AUD). The Chinese December Services Purchasing Managers Index (PMI) will be the highlight later on Monday.
After lowering its benchmark rate at three straight meetings, the US Federal Reserve (Fed) is anticipated to pause its easing cycle at the January meeting. Richmond Fed President Thomas Barkin noted on Friday that the Fed's benchmark policy rate should stay restrictive until it is more certain that inflation is returning to its 2% target. Meanwhile, Fed Governor Adriana Kugler and San Francisco Fed President Mary Daly emphasised the delicate balancing act facing US central bankers this year as they look to slow their pace of easing cycle.
Investors will closely monitor the US employment data for December, which is due later on Friday. This report could offer some hints about the Fed’s interest rate outlook in 2025. "Investors are going to want to see confirmation that labour trends remain solid, which means the economic outlook probably remains firm," noted Anthony Saglimbene, chief market strategist at Ameriprise Financial.
Australia’s November Consumer Price Index (CPI), released on Wednesday, will be in the spotlight. If the reading comes in below market expectations, this could trigger the chance of an RBA rate cut at its February meeting, weighing on the AUD. Additionally, the prospect of a trade war between the US and China could undermine the China-proxy Aussie, as China is a major trading partner for Australia.
Australian Dollar FAQs
One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.
The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.
China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.
Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.
The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.
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